Thirteenth International Conference on Interdisciplinary Social Sciences

Abstract

Recently the United States reduced the maximum corporate tax rate from 39% to 22%. Previously, the U.S. had the highest statutory corporate tax rate in the developed world. Many supply-side economist believe that the higher tax rate caused American companies to move to low-tax jurisdictions to increase their after-tax profit. Advocates for the tax cut argue that reducing the U.S. corporate tax rate, will encourage U.S. business to reinvest in the U.S., which in turn should increase business investment, output, and wages, while reducing unemployment. Keynesian economist who oppose the tax cuts, believe that the cut will have little impact on aggregate demand and thus have little impact on business investment, output, and job creation. In this paper, we empirically examine how corporate tax cuts impact business investment, output measured as GDP, wages, and unemployment. More specifically, we use annual data from 1960 to 2016 collected from the St. Louis Federal Reserve FRED website to determine the impacts that U.S. corporate tax rates have on business fixed investment, GDP, median wages, and the Civilian Unemployment. Results show that the impact of tax cuts is small and short lived for GDP and statistically insignificant for wages, unemployment, and business investment.